Qantas cuts services amid sliding economy

25th Nov 2008

Qantas Airways is cutting its capacity to cope with plummeting demand due to the global economic downturn. The reductions come in addition to capacity cuts announced earlier this year, and amount to the equivalent of grounding 10 aircraft.The airline also rattled markets with a profit warning, down from an August forecast of AU750 million (US$474 million) to around AU$500 million (US$316 million).

Geoff Dixon, who stands down as CEO this month, said, “By taking this action now we will have the flexibility to switch growth back on as soon as market conditions improve. We are in unpredictable times and the international business market, in particular, has slowed.”

Commenting on the lower profit forecast he said: “This figure is within the current range of analysts forecasts.”

To meet the capacity cuts, the company would not take up the planned lease of two A330-200 planes, change flying patterns of the remaining fleet, and stop all planned domestic market growth for Qantas and its budget off-shoot, Jetstar.

There would be no job cuts in addition to 1,500 previously announced, but the company would “be seeking further efficiencies by implementing an accelerated leave program,” Dixon said.

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“Our actual flying in the next six months will be four per cent below the equivalent period in 2008,” he added.

Incoming CEO Alan Joyce said that while Qantas had benefited from the recent fall in fuel prices, this had been offset by the global slowdown and reduced demand since September.
“Our fuel bill for 2008/09 will still be $750 million higher than last year. We have undertaken significant fuel price and foreign exchange hedging to protect against the current market volatility.
“Our forecast fuel exposure in 2008/09 is currently 97 per cent hedged at a worst-case crude oil hedge rate of US$106 per barrel, including option premium.
“At current fuel prices we have an 86 per cent participation in falling fuel prices for the remainder of the year.”
Joyce said Qantas still plans to take delivery of two more A380 planes that would fly routes to London and Singapore. The airline’s only A380 currently flies between Australia and the United States. He said he would seek further profitable flying opportunities, such as the non-stop Sydney-Buenos Aires services which commenced yesterday.